Investment managers warn of growth concerns, valuations

Each month QuotedData publishes a collation of the economic and market views of Chairmen and investment managers in the investment companies sector. The opinions of these experts make for interesting reading – and you can read the full report on their website – but, for your convenience, they have been summarised below.

Markets could be tested by “growth scares” in 2015

Global View – experts sound a note of caution

James Ferguson, Chairman of Monks, thinks Japanese and European monetary easing might offset tighter US monetary policy but cautions on valuations of US and large capitalisation stocks. Ben Rogoff, manager of Polar Capital Technology, believes markets could be tested by “growth scares” in 2015. Douglas MacDougall, Chairman of Scottish Investment Trust, says a rise in US interest rates could have a de-stabilising impact on global markets. David Reid, Chairman of Edinburgh Worldwide, favours nimble, more innovative smaller businesses in the current environment and Seneca Investment Managers prefer real assets to monetary assets.

UK corporate earnings are not yet strong enough

UK – election could unnerve markets

Chelverton Asset Management think the momentum in domestic corporate earnings is not yet strong enough to compensate for a slowing Eurozone macro outlook. The Earl of Dalhousie, Chairman of Dunedin Smaller Companies, is looking for sterling weakness and a falling oil price to offset nervousness about the UK election and possible rate rises. Aberdeen Asset Managers, managers of the Dunedin fund, caution that the election result is unlikely to be friendly to business and markets. John Dodd and Adrian Patterson, managers of Artemis Alpha are encouraged by persistent low interest rates, positive corporate results and a pick-up in takeover activity. Philip Matthews, the new manager of Schroder UK Growth, believes some relative value is emerging in more cyclically exposed sectors.

Asia – Chinese reforms offset by need for de-leveraging

Carol Ferguson, Chairman of Invesco Asia, points out that Asia is largely a beneficiary of weak commodity prices. Ian Hargreaves, its manager, is seeing genuine signs of economic reform in China. Schroders, managers of Schroder Asia Pacific, recognise this too but think value cannot be unlocked in China until some of the past excesses (notably bad debts arising from excessive borrowings) have been recognised. Ted Pulling, Sonia Yu and Jeff Roskell, investment managers of JPMorgan Asia, do not expect a debt crisis in China but say de-leveraging will be a headwind to growth.

Europe – weak currency could be helpful

Rodney Dennis, Chairman of Henderson European Focus, thinks the weak euro should help EU economies but also wonders whether a weak German economy could encourage a looser fiscal policy.

US capital expenditures to accelerate

USA – rising capex?

Bob Shearer and Tony Despirito, managers of BlackRock North American Income, say corporations, flush with cash and in an environment of increasing business confidence, could accelerate capital spending in 2015.

Brazil - government needs to be sensible

Sophie Bosch De Hood and Luis Carrillo, investment managers of JPMorgan Brazil, believe the close election result and the need to defend Brazil’s credit rating, will push the new government towards more orthodox economic policies but are still looking for very slow economic growth in 2015.

Greater China – government determined to maintain stable growth

The team managing JPMorgan Chinese (Howard Wang, Emerson Yip, Shumin Huang and William Tong) and its Chairman (William Knight) comment extensively on the prospects for China, Taiwan, Hong Kong and Macau. It is probably worth reading the long version but, in summary, they say valuations are generally undemanding, the Chinese government's determination to maintain stable growth will pave the way for further structural reforms over the medium to long-term and this should support a relatively healthy outlook.

JPMorgan very positive about the new [Modi] government

India – resolutely bullish

Rukhshad Shroff and Rajendra Nair, Investment Managers of JPMorgan India, are very positive about the new government and say they are resolutely bullish.

Frontier Markets – attractively valued

From Sam Vecht & Emily Fletcher, managers of BlackRock Frontiers, are encouraged by earnings that have kept pace with valuations, leaving companies still attractively valued in their view, and also highlight a fall in the correlation of frontier markets and emerging / developed markets.

How long will oil producers withstand low prices?

Commodities – could falling supply arrest price falls?

Lord St John, Chairman of Global Resources Investment Trust, notes the continued falls in commodity prices despite hopes of a turn in mid-2014. He thinks investors in the sector need to ensure they are adequately diversified. David Norman, Chairman of New City Energy, speculates as to how long oil producers will withstand low prices before taking remedial action. George Baird, Chairman of Geiger Counter, talking about uranium, makes the point that when a commodity falls to a level where virtually no producer makes a profit, it is purely a matter of time before a recovery takes place.

Environmental – green companies moving to the mainstream?

Perry Crosthwaite, Chairman of Jupiter Green, talks about a trend towards divestment from the fossil fuel sector by some funds, arguing that it may be that a great deal of the current fossil fuel reserves will have to stay in the ground. Jupiter Green’s manager, Charlie Thomas, thinks products produced by green companies are becoming more cost competitive.

Healthcare – more M&A and a positive outlook

James Robinson, Chairman of Polar Capital Global Healthcare, sees potential for more M&A activity in the healthcare sector despite the efforts to stem the tide of tax inversion deals. Dr Daniel Mahony and Gareth Powell, managers of the fund are positive, saying drug pipelines are strengthening and that the earnings outlook for the pharmaceutical sector is set to improve.

Infrastructure – huge growth

GCP Infrastructure draws on data from the UK government’s 2014 National Infrastructure Plan to highlight the huge growth still to come in the infrastructure sector.

Technology – large cap. value looking vulnerable

Ben Rogoff, manager of Polar Capital Technology warns that large capitalisation, value plays in the technology sector may be overvalued as new technologies substitute rather than complement their businesses.

Please check out the full version on the QuotedData website. The full text of the announcements is available on there too.

NB: This note was prepared by Marten & Co for QuotedData. Marten & Co is authorised and regulated by the Financial Conduct Authority. This is not advice. Nothing in this note is intended to encourage the reader to buy or sell the securities mentioned within it.